🔒 Sun International CEO Anthony Leeming on corporate predator circling hotel group

 Sun International Group CEO Anthony Leeming speaks to BizNews founder Alec Hogg about the unsolicited proposal made by Nueva Inversiones Pacifico Sur Limitada (IPS) to take a controlling stake. Leeming says the approach was “neither an offer nor a firm commitment to make an offer” and confirms that the proposal, a stark undervaluation of the company, was rejected. He discusses the impact of the Covid-19 lockdown on Sun International, which has hit the tourism particularly hard. Last month, Sun International announced plans to close its Sun Carousel and Naledi properties and cut 1,752 jobs at five other properties as part of a larger restructuring plan. Despite these hardships, however, Leeming expresses optimism for the future of the company, particularly with a rights issue in sight. – Nadya Swart

Why don’t we bring in Anthony Leeming – thanks for joining us. David has just made a mention about what’s been going on with the Chileans, but just take us through a little bit of background. From what one can read – these are your partners in South America? 
___STEADY_PAYWALL___

That’s right – they are partners, they are 35 percent shareholders in our business there – Sun Dreams. 

And they now want to buy the whole of Sun International instead of doing the deal on Sun Dreams – just explain to us what went on there. It sounds very messy. 

It’s not quite instead of. I think we did a transaction last year, you’ll recall – we announced disposing 15 percent in Sun Dreams to Pacifico. That deal was approved last year. We got all the regulatory approvals. They are claiming that the longstop date had gone through, but it actually wasn’t the longstop date. So we are busy dealing with them at the moment. We are not fighting particularly, but this deal should conclude and we need to make sure they fulfill their obligations. 

What is a longstop date? 

Well, generally – most agreements will have a longstop date, and by that date – if conditions aren’t fulfilled – the transaction will fall over. In this case, it wasn’t the case – they don’t fall over and therefore we are still in discussions and in arbitration with them. 

But it sounds quite cheeky; that they were going to pay you one and a half billion rand for 15 percent of your South American subsidiary, but now they want to take the same money and buy control of your company. Have circumstances changed that much at Sun International? 

No, well, it’s not the same money. I think, in essence, if you read their offer, they are saying that the litigation would remain. But given the materiality of it to the board – we couldn’t accept that position. So if they don’t want to resolve – they need to resolve before we would consider anything. In any event, it was very opportunistic and I don’t think it offered anywhere near the fixed fee. 

Yes, we’re going through a tough time – we’ve got a bit of a liquidity issue, times are difficult. We’re closed – we’ve got no revenue. Fortunately, we should be opening later today and, if not, by tomorrow at the latest. So, liquidity is the big issue at the moment – not the value. We have a great business, the assets have been built and certainly the value is there to grow into the future.

But how do you continue to operate with a partner in a major part of your business where they have shown themselves to be opportunistic like this? 

Well, look, at the end of the day, you know, both of us have the same interest to make sure that the company over there is successful. They’ve also got 35 percent stake and we both have to work together in the interests of the company. It does make things a little bit difficult compared to normal, but certainly our view on the company there is it needs to renew its licenses, it’s got some issues there in terms of the renewals that are going to take place and that’s the priority. So I think the company has got its priorities backed up for the next couple of years, and we will deal with the problem issues as a shareholder issue as opposed to a company issue. 

The last time a South American company attempted to do a deal in South Africa was with Adcock Ingram. It really turned nasty. Do you have any parallels here?

No, I don’t think so. I think the difference is; their offer has been so out there, our shareholders have rejected it outright. There’s not one that I’ve found to support it, and we have a lot of support for our rights issue that we’re getting from our shareholders. And that’s the priority, as I said, it’s a liquidity issue, not a problem with a business, the business is sound. 

Just prior to lockdown you would have seen results with money one percent up in earnings, debt under control. And right now, we just need the liquidity to continue operating, get through the Covid crisis. And then, I’m very confident that we will turn back to pre-Covid days down the line. 

Anthony, could you just explain the strategy then with the rights issue? 

Well, at this stage, obviously there’s, as I mentioned, a liquidity issue. I think we’ve got to balance the needs of the banks, the needs of the company and shareholders’ ability to put funding in the company. So, we need the money right now to ensure the banks will give us the waiver of the covenants until next year. So that we’ve got room to operate, room to recover, and we don’t have the banks on our back trying to push to get money back at this point in time. So we’ve got the ability to trade through this and the priority is really the issue for the rights offer. 

What do you make of the announcement from the tourism minister on Friday? Is that going to help the tourism sector?

Well, we still haven’t got inter-provincial travel. So, we ‘re still battling and we don’t understand – Sun City can’t operate without inter-provincial travel, same for Wild Coast. So, I think from a tourism side – it’s not the biggest part of our business, but it certainly is an important part and we want it back and we need to keep pushing to get to the inter-provincial travel – even if it is based on a letter of a confirmed booking – and then we could reopen. So I think it will come down the line. 

The tourism minister has worked well with us, the industry has worked very well. The government obviously has to deal with their priorities. And I think we’ve proven that we can do it and through the casino space – we’ll prove that we can handle the environment, so that’s critical. Once they see that, we are certainly hoping that they’ll progress with the travel restrictions that are currently in place. 

So the big thing is the provincial borders that are not able to be crossed at the moment? 

Absolutely. I mean, you go to the Wild Coast – you’ve got a bridge, the river, and there’s the Wild Coast. All our customers are coming from KZN, so we’re dealing with governments, seeing if we can’t do something in that circumstance. I mean, it is a critical income generator for those employees down in the Wild Coast. It’s a really important asset for us and for the employees. It’s critical that we can open, so that they can start working again. So I think it’s important and inter-provincial travel is key. Sun City will not survive unless you’ve got people coming from Gauteng. 

Have you had any opportunities to engage with the state or with the public officials on issues like this? Surely, you would have thought that there might be a way around if you have a booking in Sun City – then you could get yourself a permit to go across the provincial border between Gauteng and North West? 

We have engaged and we’re obviously constantly following up on this. Right up front, we said we’ll need this as a requirement to open the tourism industry. So to say that 400 000 people are going back to work is a massive overstatement if you’ve still got these big restrictions on us. So, you know, even now, even like I say, in a casino environment, we’ve got any 50 percent capacity. We’ve got no alcohol being served and no buffets, so we’re limited in terms of how many employees are coming back to work. And certainly a place like Sun City, which alone employs probably 3000, 4000 people – you can’t bring them back until you allow that travel. 

So I think the government will do a lot more lobbying. We’re pushing hard. The government has been receptive to the tourism industry, hence why the president placed the emphasis. I think these things will unlock with time. It’s a very difficult position that the government finds themselves in – trying to balance health, all industries trying to do things. I think taking them to court hasn’t worked really well for them. Certainly, we followed a different approach.

Well, let’s hope that we get through this peak, because – as we all are very aware, the Covid-19 pandemic is now really getting a lot of steam here in South Africa and elsewhere in the world. Anthony, will the rights issue be enough to see you through?

Absolutely. I mean, we had a long discussion with shareholders the other day and there was the question of why don’t you do more and make sure. The shareholders are also under pressure in terms of the options of how much money they can put into different assets. I think at the end of the day, when you look out in a years’ time as a shareholder – I would rather say you had the right number then and come back to what happened, because they can make that choice, that decision, because I think it’s uncertain – the future. We all know that. 

I think the good thing – just coming back to Covid – the death rate is plummeting. So, that’s a very important element because it means it’s easier to live with the virus. So, the death rates come down drastically all around the world. And I think even in South Africa, it’s slowing because the treatments are getting better and that will enable us to live with the virus, and therefore – hopefully a quicker recovery down the line. 

Indeed. And just for those who want to visit your resorts or go and play in the casinos. When do they reopen? 

The casinos are opening tonight, and then obviously tomorrow – we’ll open all of them definitely – other than, as mentioned, Wild Coast, Sun City Table Bay and Maslow. They won’t open. But all the other casinos, the major casinos, will open in the next day or two. 

Anthony Leeming is the Chief Executive of Sun International. Thanks, Anthony, for being with us today.